I am going to be very blunt with you.

If I were the interviewer and this was your structure you would certainly fail in this case.

The reason is very simple: you are not listening, as your structure has no connection to what was asked.

This case is about distribution channel profitability. You look at company growth, industry growth, revenue generated per customer, investments, number of employees, servicing cost… 

I believe you are trying to fit in a framework in here… whereas what you should be doing was thinking about what questions need to be answered in order to be able to provide a recommendation.

As a structure I would suggest looking: 

1) Into the current distribution model and see how one could improve profitability (which may be a matter of lower commissions, lower costs, or increasing scale) 

2) Evaluate a different distribution model

Your analysis approach is a good starting point for assessing the profitability of the distribution model for the Personal & Casualty insurance company. Here are a few additional considerations and suggestions for your problem tree:

Revenue Analysis:

Industry Comparison:

• Evaluate how the insurer's growth compares to the industry. Consider market share and potential reasons for underperforming or outperforming competitors.

Client Acquisition:

• Analyze the effectiveness of different channels for client acquisition, including advisors, call centers, and digital direct-to-consumer. Identify which channels contribute most to acquisition and evaluate their cost-effectiveness.

Client Economics:

• Break down revenue per client to identify the sources of income. Understand if there are cross-selling opportunities or if certain client segments are more profitable than others.

Existing Client Effectiveness:

• Assess the effectiveness of the company's strategies for increasing revenue from existing clients. Consider factors like upselling, retention, and customer loyalty programs.

Cost Analysis:

Fixed Costs (FC):

• Explore recent investments and assess their impact on the distribution model. Are there technology upgrades, training programs, or other initiatives affecting fixed costs?

FTE Benchmarking:

• Benchmark FTE costs against industry standards. Evaluate if the company's FTE costs are in line with or exceed industry norms. This could include assessing the productivity of advisors and call center employees.

Variable Costs (VC):

• Dive deeper into the commission structure. Evaluate the effectiveness of the current structure in incentivizing advisors and compare it to industry benchmarks.

Marketing Effectiveness:

• Break down marketing costs and assess the effectiveness of different marketing channels in acquiring new clients. Identify areas for optimization and potential cost savings.

Servicing Costs:

• Analyze the costs associated with servicing clients. Consider the efficiency of the call center and the effectiveness of digital channels in servicing clients. Are there opportunities to streamline processes?

Overall Recommendations:

Segmentation Analysis:

• Explore the possibility of segmenting clients based on profitability. This can help identify which client segments contribute the most to profits and where adjustments can be made.

Channel Optimization:

• Evaluate the overall effectiveness of each distribution channel and explore opportunities for optimization. This could involve reallocating resources, adjusting commission structures, or investing more in high-performing channels.

Customer Experience:

• Assess the impact of the distribution model on the overall customer experience. Happy and satisfied clients may lead to higher retention rates and positive word-of-mouth, contributing to long-term profitability.

Remember to prioritize the most critical issues based on their potential impact on profitability. Your problem tree can serve as a visual guide to identify areas for further analysis and improvement.

Hi there!

Sorry, but from my point of view, this is not a first principles approach. 

In fact, it's rather a typical framework because you're breaking down profitability into revenues and costs. 

First principles could be, for instance, breaking the structure down into the core questions that could lead to the answer, starting, for instance, with setting their vision. 

In case you're interested in first principles thinking, you might find this useful:

https://www.preplounge.com/en/shop/coaching-packages-5/first_principles_structuring_masterclass

Best,
Cristian

Hi there, I always recommend not to do revenue/cost as a framework. These simplistic/mathematical frameworks will not lead to success in a MBB interview. Instead structure it around 3-5 buckets with at least 3-5 hypotheses each. 

Warm regards

Freddy